S.S. Oil Mills Limited

S.S. Oil Mills Limited (PSX: SSOM) was set up in 1990 as a public limited company. Its main business is Solvent Extraction and thus extracts and refines, processes and sells semi refined washed oil and meal. Some of its products include canola oil, sunflower oil, soybean oil, canola meal, sunflower meal, and soybean meal.

Shareholding pattern

As at June 30, 2021, over 52 percent shares are with company’s directors, CEO, their spouses and minor children. Within this, close to 26 percent shares are held by each of the following: Nawabzada Shahzad Ali Khan and Nawabzada Shaharyar Ali Khan. The local general public owns 25 percent shares followed by over 14 percent in associated companies/undertaking and related parties. The remaining about 7 percent shares is with the rest of the shareholder categories.

Historical operational performance

S.S. Oil Mills has mostly seen a growing topline with the exception of FY13, FY14 and FY16. Profit margins, in the last six years, have followed a gradual upward trajectory, particularly after FY18.

After recorded at an all-time low of Rs 1.4 billion in FY16, topline in FY17 nearly doubled at Rs 2.7 billion. This was attributed to a new plant operation, with majority of the increase contributed by the refined oil segment. But with a higher revenue, came a higher cost of production due to a rise in the prices of raw materials. Cost of production consumed over 95 percent of revenue, up from last year’s nearly 93 percent. Thus, gross margin declined to 4.9 percent. While this also trickled down to the bottomline, net margin was higher, albeit marginally, due to a reduction in finance cost as a share in revenue. Therefore, net margin was recorded at 0.8 percent.

Revenue in FY18 grew by over 30 percent, crossing Rs 3 billion in value terms. While sales of refined oil grew by 8 percent, sales of by products registered a growth of almost 50 percent. But the higher revenue was again marred by cost of production continuing to consume near 95 percent of revenue, reducing gross margin marginally to 4.66 percent. With distribution expense making a smaller share in revenue, operating margin improved slightly. But net margin was hit by the escalation in finance expense. The latter was a result of an increase in mark-up rate, coupled with using short term financing to import raw material. Thus, net margin fell to 0.3 percent.

At 11.8 percent, growth rate in FY19 was relatively subdued. Volumetrically, there was a decline in production as well as sales, therefore, the increase in revenue was presumably due to prices. With cost of production slightly down to 94 percent of revenue, gross margin increased slightly. But as finance expense continued to make a larger share in revenue due to the company continuing to utilize short term financing for imports of raw material, net margin was flat at 0.3 percent.

There was some recovery in FY20 as topline grew by almost 29 percent, crossing Rs 5 billion in value terms. Revenue from by products nearly disappeared in comparison, as in FY19 it was recorded at Rs 2.6 billion, and it fell to Rs 77 million in FY20. On the other hand, sales revenue from the refined oil segment jumped to Rs5.5 billion. Cost of production hovered close to 94 percent, keeping gross margin flat at close to 6 percent, increasing only marginally. This also trickled to the bottomline, with net margin also slightly improved at 0.6 percent.

In FY21, revenue increased by over 60 percent, with topline crossing Rs 8 billion. While there was some increase in revenue from by products, majority of the revenue was contributed by the refined oil segment. Sales volumes have also been better year on year. Although cost of production continued to consume over 90 percent of revenue, at 92 percent in FY21, it was recorded at an all-time low. Therefore, gross margin reached a peak of nearly 8 percent. With cost of production also reducing, both in value terms, and as a share in revenue, due to reduced mark up rates, net margin also reached a peak of 3.9 percent for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by close to 54 percent year on year. This can be attributed to the general resumption of business activities, compared to the first quarter of FY21, when lockdowns had only eased and there was still ample uncertainty. With cost of production slightly lower as a share in revenue, gross margin was higher in 1QFY22, compared to 1QFY21. This also trickled down to the bottomline, with net margin at a higher over 3 percent.

With the increase in seed rates in the international market, combined with the local economic situation, the company’s dependence on imported raw material along with a fluctuating currency, future profitability cannot be ascertained.